09 Apr 2026
Global markets have entered a period of heightened volatility following the latest escalation of tensions involving Iran, as energy prices and risk assets adjust to the prospect of a more sustained geopolitical conflict. Against this backdrop, our senior investment team assess the evolving macro risks, outline potential scenarios and discuss how portfolios are positioned to navigate near-term uncertainty while remaining focused on longer-term fundamentals.
Salman Ahmed, Global Head of Macro and Strategic Asset Allocation
Markets have moved quickly from reacting to headlines to pricing a more sustained geopolitical event. What initially appeared consistent with past episodic Middle East flare ups has evolved into a more complex phase of escalation.
Energy remains the central transmission channel. The issue is not only production but transit. Around one fifth of global oil and refined product flows pass through the Strait of Hormuz. While it has not been formally mined or blocked, traffic has slowed materially, embedding a geopolitical premium into oil, most visibly into Brent.
Within the scenario framework outlined, markets have shifted from assuming a contained exchange to pricing a more sustained escalation, while full disruption of the Strait remains a tail risk. Duration is the key macro variable. Oil would need to remain at elevated levels for three to four months to materially affect inflation and growth. A temporary spike is manageable. A sustained period of higher prices would feed through inventories, margins and purchasing power, tightening financial conditions more meaningfully.
Unlike 2022, which marked a structural recalibration of Europe’s energy relationships, the current episode is better characterised as a disruption. Trade flows are likely to resume once tensions subside.
Political constraints also matter. The US is an energy exporter and retains tools to manage domestic price pressures. In an election year, gasoline prices are sensitive, and equity markets act as an additional constraint. For now, those thresholds have not been breached.
Niamh Brodie-Machura, Chief Investment Officer, Equities
Equities entered 2026 with multiples above long-term averages, particularly in the US, supported by expectations of robust earnings growth and AI-driven investment.
Geopolitical escalation requires reassessment of the appropriate risk premium. However, short lived geopolitical shocks tend to increase volatility and dispersion rather than permanently impair equity markets.
The key question is duration, particularly given the transmission channel from energy prices into inflation and interest rates. A prolonged rise in oil and gas prices would compress margins in energy intensive sectors and erode purchasing power. The regional impact is asymmetric. The US, as an energy exporter, is relatively insulated. Europe and much of Asia are net importers.
Sector effects are emerging. Airlines face higher fuel costs and disruption at key Middle Eastern transit hubs, while shipping markets are seeing firmer freight rates. Industrial companies warrant close attention given their exposure to input cost pressures.
The AI investment cycle remains a swing factor. Large technology companies are not indifferent to energy costs, particularly where gas and electricity prices influence data centre competitiveness.
In the absence of prolonged energy disruption, earnings growth is likely to remain the primary driver of returns. Diversification across regions and sectors remains central.
Matthew Quaife, Global Head of Multi Asset
The conflict has occurred against a backdrop of resilient global growth and ongoing investment momentum, particularly in the US. AI led capital expenditure continues to underpin nominal growth.
Markets entered this episode with constructive sentiment and extended exposures, contributing to sharper short-term adjustments.
Within multi asset portfolios, the approach has been to stay invested given resilient fundamentals, while looking to add selectively to areas that have been sold off due to positioning.
Safe havens have not behaved uniformly. Gold, where positioning had been strong, has softened in recent days but remains an important defensive allocation, and is being added to selectively. The US dollar has strengthened in line with risk aversion, though this may partly reflect prior positioning. Treasury markets have been volatile, prompting a broader search for diversified sources of defensiveness.
Regional differentiation remains central. The US benefits from relative energy independence and robust nominal growth. Europe appears more exposed in a prolonged energy shock. Japan, which has corrected sharply, retains constructive medium-term drivers.
Lei Zhu, Head of Asian Fixed Income
Oil remains central to fixed income positioning. Across most developed markets, duration exposure is neutral to underweight given the risk that sustained higher oil prices could reprice inflation expectations. Short-dated investment grade credit is favoured as a defensive allocation.
Asia presents a differentiated picture. Regional currencies have retraced some gains, though higher quality currencies have behaved relatively defensively. China stands apart. With inflation subdued and CPI at 0.2%, there is scope for policy easing. Chinese government bonds have behaved as a safe haven and duration is overweight relative to other markets.
Credit spreads in Asia have widened in an orderly fashion. Investment grade spreads have moved modestly, while high yield has seen contained widening. With a structural shortage of strong credits in the region, more meaningful spread widening would likely attract demand from investors seeking diversified income opportunities.
Currency pressures in emerging markets also warrant attention. If central banks are forced to draw down foreign exchange reserves to stabilise exchange rates, this could feed back into global bond markets. That said, the emerging market universe is far from uniform, with energy exporters benefiting from higher prices while importers face greater pressure.
The path of oil prices remains the clearest indicator of market assessment. Brent is bearing the geopolitical premium, while US crude prices remain relatively better anchored given domestic supply flexibility.
Political signalling, particularly in the US, is also critical given domestic sensitivity to energy prices.
For now, markets are pricing a prolonged risk premium rather than a systemic supply shock. The duration of elevated oil prices and developments around the Strait of Hormuz will determine whether the macro impact remains contained.
Portfolios should remain diversified and selective, anchored in medium-term fundamentals while retaining flexibility should elevated oil prices persist.
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